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Answer to Question #14954 in Macroeconomics for marmar

Question #14954

The Fed sells $10,000,000 in bonds to Jim, a bond dealer who pays for the bonds with a check drawn on his bank. Assume a 10% required reserve ratio. Which of the following statements correctly records this transaction at Jim's bank with respect to the bank's reserves?










The bank's reserves will go up by $1,000,000.









The bank's reserves will go down by $10,000,000.









The bank's reserves will go up by $10,000,000.









The bank's reserves will go down by $100,000,000.

Expert's answer
The bank's reserves will go up by $1,000,000.
Because paying with the check he increases the money amount of the bank by 10,000,000, so the bank needs to increase its
reserves by 1,000,000

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